LANGUAGE LAB. Commodity Pool

Also called managed futures funds, a commodity pool is a pool of funds that trades in the commodities futures markets.

The commodity pool, or fund, is used as a single entity to gain leverage in trading, in the hopes of maximising profit potential.

The commodity pool is managed and operated by a designated commodity pool operator (CPO), who is licensed by the National Futures Association and registered with the Commodity Futures Trading Commission.

All investors share the profits (and losses) of the commodity pool based on the capital they have contributed to the pool.

Commodity pools are similar to mutual funds in that the investors’ assets are pooled in order to make trades that would not be possible for each individual investor.

The investor’s risk is limited to the amount of his or her contribution to the commodity pool.

Investing in a commodity pool has two main advantages over opening an individual trading account with a Commodity Trading Advisor.

First, because you are joining a pool with a number of different investors, your purchasing power increases significantly. You get a lot more leverage and diversification.

Second, these commodity pools tend to be structured as limited partnerships and as an investor with a stake in the pool, the maximum you can lose is only the principal you had invested.

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